IRS Denies Tax Deductions for DispensariesThe IRS recently got involved in the medical marijuana business – that is, to inform lawmakers on how to deal with expense deductions when it comes to dispensing medical marijuana. The confusion buds from the fact that medical marijuana is legal and generates tax-revenue in fifteen states, but the product is technically illegal under federal law. And guess what, the IRS is federal; therefore, in short, the IRS “smoked” the medical marijuana dispensaries.
Lawmakers wanted the inside dope from the IRS on whether taxpayers who grow and/or sell marijuana for medical purposes may take a deduction for their business expenses. These are standard expenses, such as rent and payroll, which other industries normally deduct. They noted that tax code Section 280E was enacted in 1982 to deny deductions to individuals trafficking in illegal drugs, but state laws have changed in the meantime and many now permit the sale of marijuana for medical purposes.
The IRS dished-out its ruling in a series of identical letters to the lawmakers. The agency also cited Section 280E, specifically that it “disallows deductions incurred in the trade or business of trafficking in controlled substances that federal law or the law of any state in which the taxpayer conducts the business prohibits.” However, the IRS pointed out that marijuana is a controlled substance, as defined under the federal Controlled Substances Act – which basically means that pot dispensaries need to pay taxes, but they can’t receive deductions while they sell a federally prohibited drug.The IRS also emphasized that medical marijuana doesn’t get special treatment over other substances. The letter refers lawmakers to United States v. Oakland Cannabis Buyers’ Cooperative, in which the U.S. Supreme Court ruled that medically necessary marijuana is still marijuana and thus, still a controlled substance. Pot is pot, even if it calls the kettle full of other illegal drugs black, and so the dispensaries that sell it won’t receive tax deductions.
The ruling is already being acted upon and affects more than just hole-in-the-wall dispensaries – we’re talking big money here. The largest medical marijuana dispensary in the west –Harborside Health Center in Oakland – made over $22 million dollars last year. Just last week, Harborside received a letter from the IRS stating that they can’t deduct standard business expenses and now owe $2.5 million in taxes from 2007 and 2008 – on top of the $2 million they already paid for those years. Saying no to deductions is just the beginning, but it could mean the end of medical marijuana dispensaries. On the Money,
Sufen Wang
Wang Solutions
Wang Solutions 
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